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With a market capitalization of $59.83 billion, Starbucks Corporation (NASDAQ: SBUX ) is the largest coffee chain in the world. As of the company's most recent quarterly report, it operated 19,209 locations globally with 13,153 locations (or about 68.5% of them) operating within the United States.
In juxtaposition, Dunkin' Brands Group (NASDAQ: DNKN ) , one of the largest competitors of Starbucks, sits at around $5 billion in market capitalization. Likewise, it has fewer locations than Starbucks, with a little more than 10,450 locations in operation (excluding its Baskin Robbins operations). Similar to Starbucks though, Dunkin' has around 69.6% of its stores located within the United States.
Given the phenomenal status of Starbucks as the industry's top dog, it is only appropriate that I provide Foolish investors interested in Starbucks a little present (and no, I won't be buying you all a cup of coffee from there as even buying there myself has helped bleed me dry over the years). To commemorate the company's extreme financial and operational success over the past few decades, I decided it would be interesting to offer you all a look at four things about the company that you most likely don't know about.
Not all suppliers are created equal
Typically speaking, companies have historically been able to squeeze smaller suppliers such that most of the profitability goes to the company buying the supplies rather than the suppliers themselves. However, those days appear to be long gone for the coffee business as Starbucks, the big player in the industry, has moved to create greater accountability for both itself and the farmers it buys from.
In a concerted effort to create a more sustainable and economically viable environment, Starbucks has partnered up with Conservation International to create its Coffee and Farmer's Equity program (C.A.F.E). In accordance with the terms of the company's program, farmers who adhere strictly to its 249 rating system indicators, as well as some "zero tolerance" principles it set up, will be paid more than those who fall short.
While only 81% of the company's 367 million pounds of coffee was acquired from C.A.F.E certified suppliers in 2009, the company expects to increase that rate to 100% by 2015. In addition to providing higher quality coffee and better company practices across the globe, the program has been at least partially responsible for a larger degree of biodiversity and improved shade on farms.
But not everyone is held to the same standards!
All of the suppliers for Starbucks are expected to abide by the greater social, economic, and environmental standards set forth by Starbucks. However, there is one entity whose standards are, let's say, set at a lower bar.
Although Starbucks believes in providing for a better environment, it has shown itself to be somewhat two-faced when it comes to what it tells others to do versus what it does itself. You see, over the past few years, the company decided to switch its cups from plastic No. 1 to plastic No. 5. Though both types of plastic can be recycled, plastic No. 5 is recycled in fewer regions than plastic No. 1.
To make matters less favorable for the environment, in 2004 Starbucks began using cups that contained 10% recycled material. Though this is initially positive for the environment, the plastic coating placed on the front of its cups makes the entire cups non-recyclable. This should serve as a reminder that while Starbucks is on the lookout for ways to make its own industry more efficient and fair, it still has a lot more work to do at the operational level before it should consider itself a truly environmentally friendly company.
Coffee is soooooo yesterday!
Coffee, without a doubt, made Starbucks what it is today. However, the business has, over the years, expanded into other areas like tea with its purchases of Teavana in 2012 and Tazo in 1999. Though the tea business is an attractive area for the company, another business it jumped into over the years is far more boring; water.
In an effort to diversify itself in 2003 the company acquired Ethos, a brand of bottled water that it decided to sell in its stores. Currently, sales of Ethos water make up a fairly small portion of the company's consolidated revenues. However, there's a social twist to the operation that may be more important than the operation itself. According to the company, between $0.05 and $0.10 of the purchase price (depending on location) of a bottle of Ethos water goes toward developing clean water projects in underdeveloped areas. The small portion of proceeds allocated to charitable causes has led to criticism over the company's objectives, but the fact that some portion goes to charity should warm most any investor's heart.
Starbucks likes to experiment!
You heard that right! Starbucks, the big boy on the block, likes to experiment... on its business model. In an effort to see how well different ideas work, the company made the strategic decision to de-brand three different locations in Seattle near the Capitol in 2009. Each location was remodeled and "inspired by Starbucks" for the purpose of acting as a "laboratory" through which the company could attempt different things that it felt to be "inappropriate" for a typical Starbucks to do.
Since the company's strategic decision, at least one of the three locations has been reverted back to a Starbucks. However, the fact that the company is experimenting in the hopes of finding ways to improve its existing business model is encouraging to say the least. Instead of being a complacent business set in its own ways, this decision suggests that Starbucks still maintains a healthy and entrepreneurial mind-set toward business.
As we can see, Starbucks is a very unique and, at times, controversial company. Though it is possible for some companies to bite more off than they can chew, it appears that Starbucks maintains the right degrees of activist ideology and sensible business direction to make it an attractive prospect for those who are like-minded and passionate about the company's fundamental health and growth.
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